Regulatory Information

Pillar 3 statement

Piton Capital LLP
Disclosure under Pillar 3 of Capital Requirements Directive
Date: 30th November 2012

The Pillar 3 disclosure will be kept at the firm’s registered office and sent to whosoever requests it.

The Partner’s report will state once a year “The firm has documented the disclosures required by the FSA under BIPRU 11.3, which are available from the registered office.”

Background

Piton Capital LLP (“the Firm”) is authorised and regulated by the Financial Services Authority and is categorised as a BIPRU €50,000 Limited Licence Firm for regulatory purposes. The disclosure has been prepared by the firm in accordance with BIPRU 11 and summarises the material disclosures the firm is required to make under Pillar 3 of the Capital Requirements Directive.

Risk management objectives and policies

The business strategy and risk appetite are determined by the Partners. Based on this, a risk management framework, geared to the specific risks that are applicable to the firm, is devised and put into practice.

The Firm’s main categories of risk and its management objectives and policies for these categories are as follows:

Risk

Strategy/process to manage risk

Structure of risk management function

Risk reporting and management systems

Policy for hedging and mitigating risk

Operational risk

All of the firm’s procedures are documented in its compliance manual which is read by all key staff.

The firm is small and has a simple operating infrastructure. Compliance is overseen by the Compliance Officer.

Report compiled periodically by the Compliance Officer and discussed at meetings of the partners.

The opportunity to mitigate operational risk is reviewed regularly by the partners.

Business risk

The firm’s risk appetite and its willingness to accept business risk are defined by its partners

The risk management function is overseen by the partners.

Business risk is discussed at regular partners’ meetings.

Business strategy is managed and updated on a day to day basis by the firm’s partners.

Credit risk

No credit is extended to clients.

A list of the firm’s exposures to counterparties is maintained as part of the accounting function.

Monthly management accounts detail the firm’s exposure to credit risk.

Management fees are collected within one month.

Market risk

The firm does not incur market risk as it receives its fee income in sterling and therefore does not maintain assets or liabilities in any currency other than sterling.

If the risk did occur it would be monitored as part of the accounting function.

Monthly management accounts reviewed regularly by the partners.

If non-sterling fees did occur, foreign currency hedges would be entered into when deemed appropriate.

Financial risk

The risk of firm breaching regulatory capital requirements or falling short of its cash flow obligations is monitored as part of the accounting function.

Reviewed by partners. Where necessary external advice is sought from compliance consultants and or accountants.

Internal reporting to the partnership is on a monthly basis. Regulatory reporting to the FSA is on a quarterly basis.

Potential deficits are identified at an early stage and further capital/loans injected as necessary.

Capital Resources

The firm is a BIPRU €50,000 Limited Licence Firm and has calculated its capital resources in accordance with GENPRU 2.2. The firm’s capital resources are detailed in the table below.

  £000
Tier 1 capital resources £222
Tier 2 capital resources 0
Tier 3 0
Deductions form total capital e.g. illiquid assets 0
Total Capital Resources as at 30th November 2012 222
   
   

Capital Resource Requirements

The Firm’s Pillar 1 requirement is calculated as the higher of:

  1. The Base Capital Requirement (€50k)

  2. The sum of:
    The Credit Risk Capital Requirement; and
    The Market Risk Capital Requirement.

  3. The Fixed Overheads Requirement (3 months expenditure)

In the opinion of the partners the highest of these three is always likely to be the Fixed Overhead Requirement and therefore none of the Base Capital Requirement, the Credit Risk Capital Requirement or the Market Risk Capital Requirement are material to the Firm.

Pillar 1

As at the date of this report the Firm has a surplus of capital resources over its Pillar 1 capital resources requirement.

Pillar 2

The Firm has undertaken an Internal Capital Adequacy Assessment Process (ICAAP) to determine whether it needs any further regulatory capital due to the operational, business, credit and market risks it faces.

As a result of this the Firm has concluded that it does not need any further regulatory capital to meet its requirements under Pillar 2.

Assessment of the Remuneration Code and the firm’s Remuneration policy

  • Does the remuneration structure of Piton Capital LLP create a conflict between the level of risk taking undertaken on behalf of its clients and the remuneration expectations of its staff?
  • Does the disapplication of SYSC weaken the firm’s ability to ensure that adequate capital resources are in place at all times?

In December 2010, the FSA as a requirement of the Capital Requirements Directive extended the scope of the Remuneration Code to all investment firms falling under the directive i.e. BIPRU firms. However the extended code introduced a four Tier system in order to apply an appropriate level of proportionality to smaller firms and differing corporate structures. Piton Capital  LLP as a €50,000 Limited Licence firm falls within the Tier 4 level of firm. This enables the firm to disapply certain rules. In order to fully assess the impact of the Code on the firm, each principle of the Code has been set out below and an assessment of its impact and resulting risk to the firm has been made in order to determine the requirement for a Pillar 2 capital adjustment

Rule ref

Principle

Piton Capital LLP‘s systems and controls.

 

19A.3.7R

Principle 1: Risk management and risk tolerance
A firm must ensure that its remuneration policy is consistent with and promotes sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the firm.

The only risk-takers within the Firm are the Partners who fall outside of the scope of the Renumeration Policy

 

 

19A.3.8R

Principle 2: Supporting business strategy, objectives, values and long-term interest of the firm.
A firm must ensure that its remuneration policy is in line with the business strategy, objectives, values and long-term interest of the firm.

 The only risk-takers within the Firm are the Partners

 

19A.3.9R

Principle 3: Avoiding conflicts of interest
A firm must ensure that its remuneration policy includes measures to avoid conflicts of interest.

 A conflict of interest file is maintained and reviewed bi-annually by all staff and Partners

 

19A.3.10R

 

 

19A.3.11R

Principle 4: Governance
A firm must ensure that its governing body in its supervisory function adopts and periodically reviews the general principles of the remuneration policy and is responsible for its implementation.

A firm must ensure that the implementation of the remuneration policy is at least annually, subject to central and independent internal review for compliance with policies and procedures for remuneration adopted by the governing body in its supervisory function.

  The Partners review the renumeration policy at least annually to ensure the measures remain effective.

 

 19A.3.14R

 

 

 

 

19A.3.16R

Principle 5: Control functions
A firm must ensure that employees engaged in control functions: (1) are independent from business units they oversee (2) have appropriate authority (3) are remunerated (a) adequately to attract qualified and experienced staff; and (b) in accordance with the achievement of the objectives linked to their functions, independent of the performance of the business areas they control.
A firm must ensure that the remuneration of the senior officers in risk management and compliance functions is directly overseen by the governing body in its supervisory function.

Only the Partners have controlled functions within the firm.

 

19A.3.18R

Principle 6: Remuneration and capital
A firm must ensure that total variable remuneration does not limit the firm’s ability to strengthen its capital base.

 N/A

19A.3.20R

Principle 7: Exceptional government intervention

N/A

 

19A.3.22R

 

 

 

 

 

19A.3.25R

Principle 8: Profit-based measurement and risk adjustment
A firm must ensure that any measurement of performance used to calculate variable remuneration components or pools of variable remuneration components (a) includes adjustments for all types of current and future risks and takes into account the cost and quantity of the capital and the liquidity required; and (b) takes into account the need for consistency with the timing and likelihood of the firm receiving potential future revenues incorporated into current earnings.
Assessments of financial performance used to calculate variable remuneration components or pools of variable remuneration components must be based principally on profits.

 N/A

19A.3.29R

Principle 9: Pension policy

  N/A

 

19A.3.30R

Principle 10: Personal investment strategies
(1) A firm must ensure that its employees undertake not to use personal hedging strategies or remuneration or liability-related contracts of insurance to undermine the risk alignment effects embedded in their remuneration arrangements. (2) A firm must maintain effective arrangements designed toi ensure that employees comply with their undertaking.

  N/A

 

19A.3.32R

Principle 11: Avoidance of the Remuneration Code
A firm must ensure that variable remuneration is not paid through vehicles or methods that facilitate the avoidance of the Remuneration Code.

 N/A

 

19A.3.35R

Principle 12(a): Remuneration structures – general requirement
A firm must ensure that the structure of an employee’s remuneration is consistent with and promotes effective risk management.

 N/A

 

19A.3.36R

 

 

 

 

19A.3.38R

Principle 12(b): Remuneration structures – assessment of performance.
A firm must ensure that where remuneration is performance-related: (1) the total amount of remuneration is based on a combination of the assessment of the performance of (a) the individual (b) the business unit concerned; and (c) the overall results of the firm (2) when assessing individual performance, financial as well as non-financial criteria are taken into account.
A firm must ensure that the assessment of performance is set in a multi-year framework in order to ensure that the assessment process is based on longer-term performance and that the actual Response from remuneration policy statement payment of performance-based components of remuneration is spread over a period which takes into account of the underlying business cycle of the firm and its business risks.

N/A

 

 

19A.3.40R

Principle 12 (c) Remuneration structures – guaranteed variable remuneration
A firm must not award, pay or provide guaranteed variable remuneration unless it (1) is exceptional (2) occurs in the context of hiring new Remuneration Code staff; and (3) is limited in the first year of service.

 N/A

 

 

19A.3.44R

Principle 12 (d) Remuneration structures – ratios between fixed and variable components of total remuneration.
A firm must set appropriate ratios between the fixed and variable components of total remuneration and ensure that: (1) fixed and variable components of total remuneration are appropriately balanced ; and (2) the fixed component represents a sufficiently high proportion of the total remuneration to allow the operation of a fully flexible policy on variable remuneration components, including the possibility to pay no variable remuneration component.

 N/A

 

19A.3.45R

Principle 12 (e): Remuneration structures – payments related to early termination
A firm must ensure that payments related to the early termination of a contract reflect performance achieved over time are designed in a way that does not reward failure.

 N/A

 

19A.3.47R

Principle 12 (f): Remuneration structures – retained shares or other instruments
A firm must ensure that a substantial portion, which is at least 50%, of any variable remuneration consists of an appropriate balance of (a) shares or equivalent ownership interests… and (b) where appropriate capital instruments…

 N/A

 

19A.3.49R

Principle 12 (g): Remuneration structures – deferral
A firm must not award, pay or provide a variable remuneration component unless a substantial portion of it, which is at least 40%, (60% if £500,000 or greater) is deferred over a period which is not less than 3 to 5 years.

 N/A

 

19A.3.51R

Principle 12 (h): Remuneration structures – performance adjustment
A firm must ensure that any variable remuneration, including a deferred portion, is paid or vests only if it is sustainable according to the financial situation of the firm as a whole, and justified according to the performance of the firm, the business unit and the individual concerned.

 

 N/A

 

UK Stewardship Code Disclosure Statement

Under COBS 2.2 of the FSA Handbook, we are required to make a public disclosure in relation to the nature of our commitment to the above Code, which was published by the Financial Reporting Council (‘FRC’) in July 2010.
The Code aims to enhance the quality of engagement between institutional investors and companies to help improve long-term returns to shareholders and the efficient exercise of governance responsibilities. It sets out good practice on engagement with investee companies and is to be applied by firms on a “comply or explain” basis.

The FRC recognises that not all parts of the Code will be relevant to all institutional investors and that smaller institutions may judge some of the principles and guidance to be disproportionate. It is of course legitimate for some asset managers not to engage with companies, depending on their investment strategy, and in such cases firms are required to explain why it is not appropriate to comply with a particular principle.
The seven principles of the Code are that institutional investors should:

  • Publicly disclose their policy on how they will discharge their stewardship responsibilities;
  • Have and publicly disclose a robust policy on managing conflicts of interest in relation to stewardship;
  • Monitor their investee companies;
  • Establish clear guidelines on when and how they will escalate their activities as a method of protecting and enhancing shareholder value;
  • Be willing to act collectively with other investors where appropriate;
  • Have a clear policy on voting and disclosure of voting activity; and
  • Report periodically on their stewardship and voting activities.

Piton Capital LLP does not currently comply with the Code for the following reasons:

  • We do not currently invest in listed companies in the UK
  • We determine our approach to stewardship on a case by case basis, taking into account the actions that will lead to the most favourable outcome for the value of our investments.